Washington Update: Where Does Education Fit in the Current Scheme of Things?

January 4th, 2018

This new year, 2018, is going to be a very interesting and political year for a variety of reasons. Already, there is great interest in November’s mid-term election outcomes. Also, there is the implementation of the Tax Reform bill; legislation left on Congress’ plate when they return for the 2nd Session of the 115th Congress; and the reauthorization of the Higher Education Act. And that is only the beginning.

This update offers a taste of what is in store beginning this month, and focuses on what will affect or influence education policy, practice and programs, and related areas.

Many education stakeholders have been focused on tax reform and its implications for themselves and the broader education community. The first drafts of the bill were not at all friendly to K–12 and postsecondary education. Fortunately, the final bill is less harmful than the original proposal. There are several changes that do affect individuals, schools (public and private), universities, and the funding for local school districts in many states.

Remember, the Continuing Resolution (funding) expires on January 19, and if it is not addressed there will be a government shutdown.

Tax Reform Bill
The broad rewrite of tax code has a significant impact on numerous private universities’ endowment funds. Congress has levied a tax on earnings from the richest private university endowments that are enhanced by investments. Scrutiny of wealthy college endowments has grown in Congress recently. The new tax has left higher education leaders reeling. It is a 1.4 percent tax on endowment earnings of private universities with at least 500 students and more than $500,000 in their endowment per student.

The list of colleges subject to the tax is like taking attendance of the nation's approximately 30 elite private universities, including Stanford, Amherst, MIT, Rice, Yale, Princeton, Dartmouth, and Notre Dame. A spokesman for Harvard University, which boasts the country's largest endowment—$37.1 billion—estimated the new tax would have cost them $43 million for fiscal 2017.

Nearly every university in the nation is worrying about who’s next. The concern is once a precedent is set there may be no turning back.

No public universities were included, but there are several whose endowments are larger that several private universities, including the Universities of Texas, California, and Michigan, to name a few.

The rule on deducting one’s State and Local Taxes (SALT) has been changed. One can only deduct up to $10,000 before it was unlimited. This will hurt the funding for K–12 education at the local level and possibly public universities and libraries. It may also adversely impact the real estate market in states with high property taxes. Mayors across the country have objected to this change since their cities will be the first to be affected.

Will states need to change their laws to open up college savings plans to cover K–12 costs? The answer: It’s early, but it appears to be a mixed bag. The final GOP tax bill would allow tax-advantaged college savings plans, known as 529s, to also cover up to $10,000 a year in K–12 public, private, and religious school expenses. 529s allow families to invest their after-tax money into a college savings plan and, through compound interest, accrue earnings rapidly over time. Families pay no taxes on those earnings.

State administrators of those plans are looking closely at what this change means for them. In some cases, state lawmakers might need to tweak the language of their laws. The changes will need to be made in those states with language that specifies 529 funds can only be used for post-high school education expenses.

One other change in the bill has an unknown impact. Tax reform doubles the individual exemption. It is not clear how much this will reduce charitable donations including those to schools, universities, and related nonprofit organizations, which serve families and children. Only those who itemize can take advantage of using the donations to reduce their gross income. This will be a wait-and-see game. There is significant concern over this change.

The key to all of the changes made to the tax code is the guidance, rules, and regulations that have to be developed and distributed by the IRS.

Left on the Table
Congress is bracing for a very chaotic January and first quarter of the year. Here is some of what is on tap for starters that must be addressed.

• Spending caps: Republicans stated throughout the fall that they would use the little downtime in December to strike a bipartisan deal to boost spending caps. Talks between Democrats and Republicans fell apart, as they quibbled about increasing defense and non-defense discretionary spending equally. As a result of the current three-week stopgap measure, defense hawks will be crowing about bolstering military spending, conservatives will be furious at the significant uptick in spending, and the GOP will need Democrats to drag this across the finish line.

• Omnibus Appropriations Bill: Legislation that would keep government funded through the end of the fiscal year 2018, which ended September 30. Right now, funding runs out again on January 19. When Congress starts talking about funding it gets messy—which is why the government has been operating with stopgap funding bills since October 1. Expect battles over both parties’ priorities. This is a must-pass bill, so Congress will want to load it up with whatever needs to get the president's signature.

• Health care fix: With the removal of the Affordable Care Act individual mandate, there is a need for so-called cost-sharing reduction payments and a stabilization of insurance markets. This will need to be addressed in January. It was supposed to include cc in the tax bill. Sens. Susan Collins (R-ME) and Lamar Alexander (R-TN)—who supported a bipartisan patch—relented under pressure from the White House and Republican leadership.

Senate Majority Leader Mitch McConnell promised the fix to gain Collins’ vote for the tax bill. There's no doubt that the GOP needs to bolster this payment scheme. This affects students’ health care.

• Child Healthcare Insurance Program: CHIP expired its funding at the end of FY 17. Congress has extended funding until March. It needs to be addressed quickly so that states have the funds to cover low-income children’s healthcare and insurance. This covers some 1.9 million children.

• Debt limit: Emergency spending—more than $100 billion worth—has raised questions about when the nation's borrowing limit will need to be lifted. The government has stopped investing in certain vehicles because of Congress’ inaction to raise the debt limit. The government is using extraordinary measures to avoid default. Expect a fight here, because Republicans will want spending cuts—most likely—after a summer and fall filled with spending.

• Immigration policy and DACA: Republican leaders have all but promised quick action on a legislative fix for so-called “Dreamers.” Congress must solve the issue of whether to protect young immigrants losing the protection of an Obama-era program shielding them from deportation beginning in March 2018. This issue splits Republicans—even if it rides alongside a package to boost border-security spending. Everyone wants a fix and a deal needs to be made to get a vote. Plenty of House Republicans look to squeeze Speaker Ryan if he moves an inch away from their point of view. Without resolving both DACA and immigration policy, families may be deported unnecessarily or split up, and students sent back to their country of origin.

• Disaster relief funds: The Senate punted on this before leaving on recess while the House passed $81 billion in funding. This may be one of the first items the Senate addresses when it returns. The aid is to fund all of those states and communities adversely affected by hurricanes and fires during 2017.

• Finalize defense spending: There is a need to complete this appropriation to continue to keep our readiness level and purchasing of new and updated equipment. It also includes funding for DoD schools.

• Reauthorizing the long-term federal warrantless surveillance program: The National Security Agency’s (NSA) warrantless surveillance program is set to expire on January 19 when the stopgap funding measure ends. This is Section 702 of the Foreign Intelligence Surveillance Act (FISA). It allows the government to collect emails and text messages sent by foreign spies, terrorists, and other foreign targets overseas, etc. This is a matter of national interest and security.

Higher Education Reauthorization Promoting Real Opportunity, Success, and Prosperity through Education Reform (PROSPER) Act [HR 4508]
The House Committee on Education and the Workforce has passed the bill out of Committee. It awaits floor action. The Senate Committee on Health, Education, Labor, and Pensions has yet to complete its own bill as it did with ESSA. Senators Alexander and Murray are able to work in a bipartisan fashion unlike the House Committee. Clearly, the reauthorization will not be rushed, but should be completed before the end of the 115th Congress. A summary of the House bill can be found here.

Some of the areas addressed in the House bill are:
• Promoting innovation, access, and completion;
• simplifying and improving student aid;
• empowering students and families to make informed decisions; and
• ensuring strong accountability and a limited federal role.

Several other issues are being or will be addressed in 2018. For example:
• Expect a proposal or even legislation to reauthorize the Career and Technical Education Act.
• More regulatory and guidance changes for existing education programs.
• By the end of this term, the Supreme Court will be making pivotal rulings on such issues as union dues, student rights and sexual orientation, and a few others.
• Currently underway is the development of policy and practice to address student loans for those who attended for-profit postsecondary institutions that acted dishonestly and were closed. This is often referred to as borrower defense to repayment (BDR) claims. After careful review to ensure a fair and efficient process, the Department unveiled an improved discharge process.
• Secretary DeVos is seeking information from the public regarding how the Department can improve upon its consideration of the unique needs of rural schools and districts as it develops and implements policies, programs, and procedures (see the preliminary report here) and blog post here. DeVos intends to use this information in issuing a final report, as required under ESSA, describing the steps the Department will take to increase the participation of rural schools and districts in the development and execution of its initiatives. Comments must be received no later than February 20.

Expect the Department to increase its efforts to expand school choice.

Trump will try to push his infrastructure proposal, that should include school construction, but it is a big “if” with numerous competing factors including a crowded legislative agenda, fiscal offsets, mid-term elections, and more.

In Conclusion
Senate Majority Leader Mitch McConnell has said he wants to work for more bipartisanship in 2018! He predicted the GOP will “move on” from efforts to repeal Obamacare, particularly with Alabama Senator-Elect Doug Jones narrowing the Republican majority to 51-49. One can hope that something substantial will be accomplished prior to the mid-term elections.

This Update has covered a wide range of topics. I hope you have found it useful. Watch out for the next Update, which will have more details on how we are progressing… or not.

About the Author

Fritz Edelstein is a principal in Public Private Action. His work focuses on strategic government and constituent relations, business development strategy, advocacy research and policy analysis, strategic planning and resource development, and advocacy, outreach and public engagement. This work includes producing Fritzwire, the education Internet newsletter providing timely information on education and related issues. To subscribe, write fritz@publicprivateaction.com.